Sweeping demographic shifts, technological advances, competition, geopolitical realignments and other related pressures are combining with security concerns, changing customer preferences, expansion urges and organizational governance to generate momentous pressure for organizational change (Kotter 96; Howard 3). A diversity of studies (Haveman 20; Kotter 97; Amburgay 55) have found that organizations need to continually change and reinvent themselves to maintain their competitive advantage in the ever-shifting and continuously more complex business environment of the 21st century.
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In his study on organizational readiness for change, Susanto argues that the ever-shifting business environment generates compelling demand for an organization to continually change and modify its strategy, structure, process, and culture (50). In essence, change has become routine for effectiveness and success in business, but studies conducted over time demonstrate that it does not always guarantee positive outcomes.
Organizational theorists agree that organizational change and transformation can be both adaptive and disruptive (Amburgay 51), not mentioning that it often leads to organizational effectiveness or failure. According to Probst & Raisch, “…prior research has shown that organizational changes lead to an immediate increased risk of organizational failure due to the disruption and destruction of existing practices and routines” (93-94).
The researchers believe that a certain organizational identity is fundamentally required to undergo change and transformation effectively, and organizations cannot endure without developing a concrete basis that provides guidance and direction during changing times. Indeed, some rudimentary changes, such as sweeping transformation, change of business model, mergers and acquisitions, entering into a different industry or initiating expansion, always lead to the certain destruction of an organization’s identity, thus increasing the risks for failure.
Other factors come into play in determining the effectiveness or failure of a change process. A study conducted by Haveman on diversification in the savings and loans industry found that a large proportion of organizational change efforts turns out to be ineffective due to lack of adequate harmonization of fundamental components within the organization that ingeniously act as the foundation for the implementation of the change process (50). It is against this backdrop that this study purposes to identify these components within the framework of organizational theory and discuss how these components act to facilitate change and transformation for growth and expansion in Wal-Mart.
Founded in 1962 by American entrepreneur Sam Walton, Wal-Mart has grown to become the behemoth of departmental discount stores not only in the U.S. but also in other locations globally. The company is undoubtedly the world’s largest retailer and public corporation by revenue, with over 4000 stores in the U.S alone, employing an estimated 1.4 million workers (Ailawadi 577). Overall, the company operates 8500 discount stores in 15 countries around the world, with 55 different flagship names.
It is estimated that more than 127 million customers visit Wal-Mart supermarket chain each week, and the company’s 2005 U.S. sales surpassed the next U.S. discount stores combined. Although the company has received more than its fair share of criticisms, particularly from labour groups for its low wage bill (Turock 28), and from small business owners for its tendency to overshadow market competition and driving competitors out of business (Ailawadi et al. 577), its business acumen, competitive advantage, and economic impact are critical factors that cannot be wished away.
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Wal-Mart’s operations are largely organized into three divisions and nine different retail formats. The divisions include ‘Wal-Mart Stores U.S., Wal-Mart International, and the value-added Sam’s Club, while the retail formats include super-centres, food and drug stores, small markets, general merchandise stores, cash-and-carry stores, restaurant chain, membership clubs, apparel exhibitions, and soft discount stores’ (Parnell& Lester 14).
Taking into account Wal-Mart’s enormous size, increased differentiation and expansion strategies, business analysts have always been at a loss to explain how the company successfully changes its business processes and practices to fit the current situation in the environmental context, remain profitable, and maintain its competitive advantage against a backdrop of intense organizational complexities (Turock 29).
According to Howard, organizational change is a difficult task to undertake, even in organizations with minimal layers of authority and differentiation (23). Yet, Wal-Mart has remained at the forefront of undertaking changes and structural restructurings to meet the needs of the current economic environment and remain relevant to customers in terms of fulfilling their expectations, especially in maintaining the low price model. More importantly, most of the changes and transformations initiated by the company have been successful against a backdrop of numerous failures in other companies (Parnell& Lester 16). This paper, therefore, aims to:
- Identify and discuss the various components within the framework of organizational theory that comes into play to facilitate change and transformation for growth and expansion in Wal-Mart.
- Critically evaluate how these components relate to Wal-Mart’s strategy and structure in efforts geared towards organizational change and transformation for growth and expansion.
Organization theory concerns itself with a broad allay of topics (7). Still, this paper will focus attention to several topics directly related to change and transformation, which includes external elements, intense competition, strategic or structural frameworks, and speed and responsiveness. It is imperative to note that the concepts related to organizational theory apply to all categories of organizations in all sectors.
Many organizational theorists attest the fact that change and transformation are mostly triggered by an immediate urge to adapt to a myriad of external elements that may arise as a direct consequence of increased competition, shifts in customer expectations, new government regulations and entry into new markets, among others (Howard 7). According to Daft, “…organizations are not static; they continuously adapt to shifts in the external environment” (7).
Some specific challenges faced by organizations today are globalization, the convergence of technology, extreme competition, thorough ethical scrutiny, enhanced diversity, new regulations, and the need for rapid response (Morgan 27), and managers must be ever ready to position their organizations to adapt to new needs arising from external elements or risk failure.
In globalization, which is an external element, successful organizations have realized that markets, technologies, customers, and organizations are becoming ever more interconnected (Daft 7), and have implemented change and transformation along this paradigm. Sharp companies, according to the author, have made the necessary changes aimed at necessitating outsourcing to take advantage of the global labour force, and have also initiated efforts geared towards a strategic partnership with foreign organizations to gain the much needed global advantage. Available literature also demonstrates that many organizations change their business processes by engaging in cross-border acquisitions, which they view as fundamental to their future competitiveness (Daft 8).
In intense competition, Daft notes that the “…glowing global interdependence creates new advantages, but it also means the environment for companies is becoming extremely competitive” (8). Customers need low-priced goods and services although operational costs and costs of raw materials needed to produce the goods are increasing by the day. To overcome this challenge arising from the external environment, some organizations have fundamentally changed their business processes to allow for the outsourcing of human capital.
In contrast, others are actively engaged in putting in place strategies that will cut internal costs to enable them to remain competitive in the face of shifting economic environment (Isaksen 9; Morgan 28). Companies can outsource human capital from low-wage countries, where work cost an estimated 50-60 per cent less than when it is done in-home countries (Daft 8).
Another significant challenge for organizations is to have the capacity to respond quickly and decisively to the changes arising within the external environment, organizational crises, and changing customer expectations (Daft 9). Successful companies must always have the capacity to develop new ways to cope with enhanced competition, volatile environmental changes, and shifts in customer demands and expectations.
Today, more than ever before, globalization and convergence of technology have hastened the pace at which organizations must roll out their products and services to beat the competition and remain relevant in the marketplace (McGahan 89). This component, according to Wischnevsky, is critical in efforts aimed at organizational growth and expansion strategies because new markets are always difficult to deal with, and that changes do occur in a moment’s notice (362).
An organizational structure, according to Miles & Snow, basically entails a depiction of the various types of coordination employed in the process of organizing the actions of people (employees) and departments towards the achievement of a common objective for the organization (3). An organizational structure also not only delineates formal communication channels but also illustrates how distinct actions of employees are linked together (Carpenter et al. 26). Many organizations employ a hierarchical structure, whereby managers are obliged to report directly to those above their positions.
The shifts arising from the external environment have obliged organizations to develop structures that are greatly responsive to these changes in an attempt to maintain a sustainable competitive advantage (54). Miles & Snow think that the structure of the organization expands as the organization grows, and that structure largely determines an organization’s capacity to adapt to change (21). According to Carpenter et al., the level of centralization or decentralization of decision making coupled with the layers of authority existing between the top-level management and frontline employees critically determines how organizations can adapt to change (67).
Findings & Analysis
A comprehensive analysis of literature relating to Wal-Mart and how it maintains its competitive advantage in implementing change and transforming its organizational structure (Parnell & Lester 18; Turock 29) reveals that the organization is well aware of the fact that markets and organizations have become increasingly interconnected, and the only viable option is to embrace globalization in change efforts and attempts to maintain its competitive advantage. Although Wal-Mart continues to be accused of giving out jobs that could be done by locals (Lavallee & Bayer 254), the company continues to benefit from its outsourcing strategies especially in terms of expanding its business interests and reducing costs (Parnell & Lester 21).
An analysis done on Wal-Mart by Parnell & Lester found that managers are particularly interested in developing relationships with other companies, particularly in China, Japan, and India, for future competitiveness and business success (15). What’s more, Wal-Mart continues to partner with global firms, such as the U.K’s Asda and acquiring other firms, such as China’s Trust-Mart and Brazil’s Brompreco chain, to gain a global competitive advantage (Troy 1-4).
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According to Mike Duke, the company’s vice chairman, “…Wal-Mart’s goal is to apply its human and financial capital in those markets that offer the greatest growth opportunities and long-term potential” (Troy 1). In consequence, it can be safely argued that the components of outsourcing, strategic partnering, and acquisitions demonstrate how Wal-Mart has effectively employed globalization as a key driver of change to expand internationally.
However, the company does not engage in blind expansion or acquisition strategies as it can be demonstrated by the broad repositioning of its portfolio of international operations by selling loss-making stores and concentrating on profit areas. In July 2006, Wal-Mart sold its 85 stores operating in Germany to Metro AG, and earlier in 2005, the company had sold off its 16 loss-making stores operating in South Korea to Shinsegae (Troy 1).
The retail business is intensely competitive, and Wal-Mart has implemented change strategies that reinforce this fact. To remain competitive, managers realized that they need to continue with Wal-Mart’s tradition of low prices while expanding into emerging markets to increase the company’s revenue base (Parnell& Lester 23). Being the world’s largest retailer by size and revenue, Wal-Mart has managed to put in place mechanisms to mitigate intense competition by establishing a strong network of global suppliers (Parnell & Lester 17). The company’s sheer size has given it an upper hand when it comes to dictating how it buys products from suppliers, not mentioning that it has well-established frameworks to allow outsourcing, thus benefiting immensely from low-wage countries (Turock 30).
More importantly, managers at Wal-Mart have put in place strategies that allow for ‘mopping up’ of the exigencies occurring in the external market, such as the promotion of cheaper store brands and philosophy of not passing the higher costs incurred in operations to customers (Ailawadi et al. 579). In this context, it can be safely argued that the components of the network of global suppliers, frameworks to allow outsourcing and the mopping up strategies allows Wal-Mart to successfully negotiate change and transformation as it re-engineers its business and expand into other critical focus areas.
In responding quickly and decisively to shifts in the external environment, Wal-Mart has taken time to develop and internalize a mindset that is inarguably needed in terms of expecting the unexpected, in addition to allowing some leverage and independence for field managers to make critical decisions on matters that may impact negatively on the company if not addressed with speed (McGahan 90).
This implies that Wal-Mart’s organizational structure allows managers the leeway to make critical decisions on how to act and drive business in the field provided the decisions made aligns with the company’s broader objective of remaining a market leader (Probst & Raisch 95). As such, it can be argued that Wal-Mart utilizes an open form of leadership, a factor that has ingeniously allowed it to manage rapid and shifting demands arising from the environment successfully. This is a critical ingredient in expansion strategies.
Although it is evidently true that the organizational structure may influence the capacity to adapt to change (Miles & Snow 29), Wall-Mart has a large structure judging from its size and differentiation yet it excellently adapts to change and transformation. However, upon a deeper analysis of the organization, Parnell & Lester found that the company utilizes an exceedingly decentralized structure to provide a framework for effectiveness in decision-making (17).
Available literature reveals that a decentralized structure is not only able to adapt to change quickly, but resistance to change is minimal due to the fact that everyone has the opportunity to contribute. Despite the huge size of Wal-Mart, the company uses a flat organizational structure as opposed to a tall structure, implying that only a few layers of authority are present between top-level management and frontline employees (Parnell & Lester 18).
This not only enhances efficient decision-making processes but also ensures that changes within the external environment are noted in time to ensure appropriate action is taken. In this perspective, it can be argued that Wal-Mart’s decentralized structure and flat authority structures have worked well to ensure the company is able to handle change and transformation as it expands into other regions.
The major focus for this paper was to identify and discuss the various components within the framework of organizational theory that comes into play to facilitate change and transformation for growth and expansion in Wal-Mart. Through a critical review of literature and analysis, it has been revealed that outsourcing, strategic partnering with global firms, acquisitions in key markets, a strong network of global suppliers, internalization of a mindset of change responsiveness, leverage and independence of field managers, and open form of leadership have all acted to facilitate change and transformation for growth and expansion in Wal-Mart.
Of course, there are other issues such as corporate culture and huge investments in technology (Turock 30), but these are outside the scope of this paper. It is imperative to note that these components relate well with Wal-Mart’s decentralized organizational structure and flat authority structure to streamline decision-making processes and ensure the company maintains its focus in remaining a market leader and offering goods to customers at extremely discounted prices. These components can, to a large extent, be credited for enabling the company to expand into many regions globally and still maintain its competitive advantage (Isern & Pung 19).
Certainly, Wal-Mart is on the right track, especially in using organizational theory to manage its change and transformation. The international business portfolio is raking in more profits for the company (Troy 3), and it is up to Wal-Mart’s management to maintain the pace. It is up to the management to realize that successful companies have in the past fallen from ‘grace to grass’ (Isaksen 10), and it’s their main responsibility to be on the lookout for challenges that may slacken the pace of growth of the company or hinder it from achieving its business goals.
More still needs to be done to make Wal-Mart’s critics realize that strategies such as outsourcing and relying on blue-collar employees are core business strategies rather than attempts to take advantage of the labour force. This can be done through education and awareness. Additionally, strategies need to be put in place to guard against excessive growth that may be counterproductive in terms of enhancing the chances for the company to lose its identity and the desired state of affairs. Lastly, the management needs to develop ways to deal with burnout and uncontrolled change.
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